What a Breach of Fiduciary Duty Attorney Must Prove in Minnesota

What Are the Elements of a Breach of Fiduciary Duty Claim?

A fiduciary who fails to meet a fiduciary obligation can be held liable for the damages the breach causes. In Minnesota, “[a] breach of fiduciary duty claim consists of four elements: duty, breach, causation, and damages.” Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319, 327 (Minn. 2019) (citing TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC, 890 N.W.2d 423, 434 (Minn. App. 2017)). In an ordinary civil action, the plaintiff proves “every essential element of his case, including damages, by a fair preponderance of the evidence.” Carpenter v. Nelson, 257 Minn. 424, 427, 101 N.W.2d 918, 921 (1960).

What Is a Fiduciary Duty in Minnesota?

A fiduciary must act with “the utmost fidelity” to the party holding the fiduciary in confidence. Swenson v. Bender, 764 N.W.2d 596, 603 (Minn. App. 2009) (quoting Christensen v. Redman, 243 Minn. 130, 136, 66 N.W.2d 790, 794 (1954)). An agent, for example, may not put the agent’s own interests ahead of the principal’s. The Minnesota Supreme Court has said that the law “will not permit [an agent] to place himself in a position in which he may be tempted by his own private interests to disregard those of his principal.” Tarnowski v. Resop, 236 Minn. 33, 36, 51 N.W.2d 801 (1952) (quotation omitted). Minnesota’s Trust Code states the same rule for trustees: a trustee “shall not place the trustee’s own interests above those of the beneficiaries.” Minn. Stat. § 501C.0802(a).

Minnesota’s LLC statute names “the fiduciary duties of loyalty and care” (Minn. Stat. § 322C.0409, subd. 1), and “[t]rustees owe beneficiaries fiduciary duties of loyalty, full disclosure, and action pursuant to the terms of the trust” (Lund v. Lund, 924 N.W.2d 274, 284 (Minn. App. 2019)). These duties come from both court decisions and statutes. For trustees, “[t]he common law of trusts and principles of equity supplement this chapter, except to the extent modified by this chapter or another law of this state.” Minn. Stat. § 501C.0106.

When Does Someone Owe You a Fiduciary Duty?

Minnesota recognizes two kinds of fiduciary relationships. Some are fiduciary as a matter of law: trustee-beneficiary, attorney-client, business partners, director-corporation, officer-corporation, and husband-wife. In others, the circumstances create a de facto fiduciary obligation. Swenson v. Bender, 764 N.W.2d 596, 601 (Minn. App. 2009). Outside the per se categories, a fiduciary relationship exists “when confidence is reposed on one side and there is resulting superiority and influence on the other,” and the relationship “need not be legal, but may be moral, social, domestic, or merely personal.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (quoting Stark v. Equitable Life Assur. Society, 205 Minn. 138, 145, 285 N.W. 466, 470 (1939)). Trust alone is not enough: an ordinary business relationship that “involves reliance on a professional, surely involves a certain degree of trust and a duty of good faith and yet is not classified as ‘fiduciary.’” Carlson v. SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn. App. 2007). A corporate director’s duties run to the corporation and its shareholders. Minn. Stat. § 302A.251, subds. 1, 4.

The duties arising from a fiduciary relationship “are often described as duties of care, good faith, and candor.” Swenson v. Bender, 764 N.W.2d 596, 603 (Minn. App. 2009). Shareholders of a closely held corporation owe each other a fiduciary duty to observe “the highest standard of integrity in their dealings with each other.” Blum v. Thompson, 901 N.W.2d 203, 214 (Minn. App. 2017) (quotation omitted). Ownership alone does not always create a duty: in a manager-managed or board-managed LLC, “[a] member does not have any fiduciary duty to the company or to any other member solely by reason of being a member,” so the duty must come from another source. Minn. Stat. § 322C.0409, subds. 7(5), 8(5).

Outside the per se categories, whether a fiduciary relationship exists is a question of fact. Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985). The court looks at one party’s reposed confidence and the other’s resulting superiority and influence, as when one person hands control of their financial affairs to someone with greater access to facts and legal resources. “Disparity of business experience and invited confidence could be a legally sufficient basis for finding a fiduciary relationship.” Id. (quotation omitted). No fiduciary relationship arises, even from a long, close, and trusting relationship, when the trusting party “should have known the [other party] was representing adverse interests.” Swenson v. Bender, 764 N.W.2d 596, 602 (Minn. App. 2009) (quotation omitted).

What Counts as a Breach of Fiduciary Duty?

Breach is the second element. In a claim against an attorney, for example, it is “a breach by the attorney of one or more of the fundamental obligations owed to the client under that standard of conduct.” Mittelstaedt v. Henney, 969 N.W.2d 634 (Minn. 2022). Breach is only one of the four elements; a breach that causes no compensable damage does not support a damages claim. Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319, 327 (Minn. 2019).

A breach can take several forms, including these four:

1. Self-Dealing: The fiduciary uses its position for its own benefit, acting on a conflict between its interests and the principal’s. “A fiduciary is prohibited from self-dealing in violation of the trust placed in her.” Swenson v. Bender, 764 N.W.2d 596, 603 (Minn. App. 2009).
2. Failure of Care: Whether carelessness breaches a fiduciary duty depends on the relationship. A corporate director must act “with the care an ordinarily prudent person in a like position would exercise under similar circumstances” (Minn. Stat. § 302A.251, subd. 1); a trustee “shall exercise reasonable care, skill, and caution” (Minn. Stat. § 501C.0804); and an LLC member of a member-managed company (or the manager or governor of a manager- or board-managed company) owes, “[s]ubject to the business judgment rule,” “the care that a person in a like position would reasonably exercise under similar circumstances” (Minn. Stat. § 322C.0409, subds. 3, 7, 8). A general partner’s duty of care, however, “is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law” (Minn. Stat. § 323A.0404(c)), so ordinary negligence alone does not breach it. An attorney’s ordinary negligence is a professional-negligence claim rather than a fiduciary one. Both are forms of legal malpractice, but the Minnesota Supreme Court has “long held that professional negligence and breach of fiduciary duty are distinct claims.” Mittelstaedt v. Henney, 969 N.W.2d 634 (Minn. 2022).
3. Misrepresentation: A fiduciary gives the principal false or misleading information, violating the duty of honesty and good faith. “Corporate officers owe the corporation and its stockholders the active duty of honesty and good faith,” and an officer who told management that a nonexistent auction had occurred and falsified the company’s records breached his fiduciary duty. TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC, 890 N.W.2d 423, 426-27, 434-35 (Minn. App. 2017) (quotation omitted).
4. Failure to Disclose: The fiduciary fails to tell the principal facts the fiduciary knows that might reasonably affect the principal’s rights and interests. A Minnesota agent “is bound to disclose . . . all facts of which he has knowledge which might reasonably affect the principal’s rights and interests,” because what is best for the principal “must ultimately be the [principal’s] decision, not the agent’s.” White v. Boucher, 322 N.W.2d 560, 565-66 (Minn. 1982). Once a fiduciary relationship exists, the fiduciary can “be liable for fraudulent misrepresentation by silence even though there was no evidence of fraudulent statements or of intentional concealment.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (quotation omitted).

How Do You Prove the Breach Caused Your Loss?

Causation, the third element, requires you to show that the breach itself caused your loss. Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319, 327 (Minn. 2019). The standard is the ordinary civil one: “[i]n an ordinary civil action, the plaintiff has the burden of proving damages caused by the defendant by a fair preponderance of the evidence.” Canada by and Through Landy v. McCarthy, 567 N.W.2d 496, 507 (Minn. 1997). The evidence need not be unequivocal or remove all reasonable doubt. Carpenter v. Nelson, 257 Minn. 424, 427, 101 N.W.2d 918, 921 (1960). Causation and damages are separate elements, Hansen, 934 N.W.2d at 327, but they overlap. The Minnesota Supreme Court has observed that the elements of a tort claim “interact extensively (i.e., it is hard to assess damages without understanding the causation theory) and typically should not be treated in isolation.” Hansen, 934 N.W.2d 319 n.7. In practice, connect each loss you claim to a specific act or omission of the fiduciary.

What Damages Can You Recover for a Breach of Fiduciary Duty?

In Minnesota, “actions for the breach of a fiduciary duty generally sound in equity,” so recovery covers the lost value of an asset, a profit you were deprived of, or the fiduciary’s improper gains. R.E.R. v. J.G., 552 N.W.2d 27, 30 (Minn. App. 1996). “Equity seeks to restore the plaintiff to the position he or she occupied before the breach or to claim the defendant’s ill-gotten profits for the plaintiff.” R.E.R., 552 N.W.2d at 30. The Minnesota Court of Appeals has declined “to expand the remedies available for the breach of a fiduciary duty to include emotional distress and any resulting monetary damages.” Id. at 30-31; see also Kohler v. Fletcher, 442 N.W.2d 169, 172 (Minn. App. 1989). Money damages are available on proof of financial injury. Blum v. Thompson, 901 N.W.2d 203, 216-17 (Minn. App. 2017).

When the fiduciary is a trustee, the trustee is liable for the greater of “the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred” or “the profit the trustee made by reason of the breach.” Minn. Stat. § 501C.1002(a). Minnesota cases recognize these categories of loss:

1. Financial Loss: This covers losses the breach caused, such as losses in operating a business, plus expenses the breach made necessary, including the costs and attorney fees of litigation with third parties. Tarnowski v. Resop, 236 Minn. 33, 37-40, 51 N.W.2d 801 (1952). It also covers the loss in value of an ownership interest, such as shares the plaintiff was forced to sell below fair value. Pedro v. Pedro, 489 N.W.2d 798, 802 (Minn. App. 1992). Attorney fees spent suing the fiduciary itself generally are not recoverable as damages. Gilchrist v. Perl, 387 N.W.2d 412, 418 (Minn. 1986).
2. Lost Opportunities: Equity allows recovery of “the profit of which a beneficiary was deprived,” R.E.R. v. J.G., 552 N.W.2d 27, 30 (Minn. App. 1996), but “there can be no recovery for damages which are remote, conjectural, or speculative.” Carpenter v. Nelson, 257 Minn. 424, 101 N.W.2d 918 (1960). For a trust, Minn. Stat. § 501C.1002 makes a breaching trustee liable for at least “the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred.” In a statute-of-limitations ruling, the Minnesota Supreme Court called a claimed lost better deal “purely speculative harm” because nothing in the pleadings showed that a better deal or a higher-paying buyer existed. Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319 (Minn. 2019).
3. Injury to the Business: When a disloyal agent’s breach harms the principal’s business, the principal may recover “the amount which will compensate for the injury to the business,” provided the principal proves the breach caused that loss. Tarnowski v. Resop, 236 Minn. 33, 38-39, 51 N.W.2d 801 (1952) (quoting Restatement, Agency, § 407 cmt. a). I have found no Minnesota decision that recognizes harm to reputation as its own category of damages for breach of fiduciary duty. In one case, the Minnesota Court of Appeals concluded that the defendant owed the plaintiff no fiduciary duty. In the alternative, it refused to let a claimed de facto fiduciary duty stand in for conversion and defamation claims that had failed or been dismissed, calling the fiduciary theory “essentially a weak substitute for the dismissed defamation claim.” Swenson v. Bender, 764 N.W.2d 596, 603-04 (Minn. App. 2009).

To recover money for a loss, you must prove that the breach caused damages. Mittelstaedt v. Henney, 969 N.W.2d 634 (Minn. 2022) (quoting Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319, 327 (Minn. 2019)). For a claim seeking compensatory damages, proof centers on financial loss. Without it, the claim fails: the Court of Appeals affirmed summary judgment where the plaintiff “failed to produce evidence of damages, an essential element of a breach-of-fiduciary-duty claim,” without reaching the other elements. Lund v. Lund, 924 N.W.2d 274, 284 (Minn. App. 2019). You need not show that the fiduciary profited from the breach; the Court of Appeals was “unaware of any such caselaw” requiring it. TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC, 890 N.W.2d 423, 435 (Minn. App. 2017).

Some remedies do not require proof of loss. A fiduciary who breaches its duty forfeits its right to compensation “even though the principal . . . cannot prove actual injury.” Rice v. Perl, 320 N.W.2d 407, 411 (Minn. 1982) (quotation omitted). The forfeiture is total when the breach involves actual fraud or bad faith. When an attorney’s breach involves no actual fraud or bad faith and causes the client no actual harm, particularly when there are multiple potential plaintiffs, the factfinder may set a smaller forfeiture using the factors in Minn. Stat. § 549.20, subd. 3. Gilchrist v. Perl, 387 N.W.2d 412, 417 (Minn. 1986).

The forfeiture rule reaches non-attorney fiduciaries: an insurance agency could not avoid fee forfeiture because a jury found no actual damages. Commercial Associates, Inc. v. Work Connection, Inc., 712 N.W.2d 772, 778, 780 (Minn. App. 2006). A real-estate agent’s nondisclosure breaches the agent’s duty, but the commission is forfeited only if the breach was material, meaning the principal would not have made the deal had the agent disclosed. White v. Boucher, 322 N.W.2d 560, 567 (Minn. 1982). Against an attorney, fiduciary claims “can lead to equitable remedies, such as fee forfeiture or disgorgement.” Mittelstaedt, 969 N.W.2d 634. An agent who profits from disloyalty must give up the profit even if “the principal has suffered no damage.” Tarnowski v. Resop, 236 Minn. 33, 36, 51 N.W.2d 801 (1952).

What Standard Does a Fiduciary Have to Meet?

The standard the fiduciary must meet is not a separate element. It supplies the content of the duty and breach elements: it defines what the fiduciary owed and is the yardstick for whether the conduct fell short. In one case, the Minnesota Court of Appeals found that an officer’s conduct fell below the statutory standard and that he breached his fiduciary duty, “thereby satisfying the first two elements of the claim.” TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC, 890 N.W.2d 423, 434-35 (Minn. App. 2017). A trustee must administer the trust “as a prudent person would” and “exercise reasonable care, skill, and caution” (Minn. Stat. § 501C.0804), while a general partner’s duty of care is limited to avoiding gross negligence, recklessness, intentional misconduct, or a knowing violation of law (Minn. Stat. § 323A.0404(c)).

For a corporate director, Minn. Stat. § 302A.251, subd. 1, sets the standard:

A director shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A person who so performs those duties is not liable by reason of being or having been a director of the corporation.

In plain terms, a director must act in good faith, do what the director reasonably believes is best for the company, and take the care a sensible person in the same position would take under similar circumstances. A director who meets that standard is not liable for actions taken as a director.

The director standard does not forbid every conflict of interest. Under Minn. Stat. § 302A.255, subd. 1, a contract between a corporation and one of its directors is not void or voidable merely because of the director’s interest if the person defending it proves it was fair and reasonable to the corporation when authorized, approved, or ratified. It is also protected if, after full disclosure of the material facts, it was approved in good faith either by holders of two-thirds of the voting power of shares owned by persons other than the interested director (or by all shareholders unanimously), or by a majority of the directors or committee members then in office, with the interested director neither counted toward the quorum nor voting.

The standard can rise with the fiduciary’s expertise. A trustee who has special skills or expertise, or who was named trustee because it represented that it had them, “has a duty to use those special skills or expertise” when investing and managing trust assets. Minn. Stat. § 501C.0901, subd. 2(e). A trustee’s investment decisions are judged without hindsight: “The prudent investor rule is a test of conduct and not of resulting performance,” and compliance is judged “in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.” Id., subd. 6.

When the fiduciary is an attorney, Minnesota generally requires expert testimony to prove the duty and the breach, unless “the conduct can be evaluated adequately by a jury in the absence of expert testimony,” which the district court decides case by case. Mittelstaedt v. Henney, 969 N.W.2d 634 (Minn. 2022) (quotation omitted). Minn. Stat. § 544.42, subd. 2, requires expert-review affidavits in an action against an attorney “alleging negligence or malpractice” when expert testimony will be used to make a prima facie case. The statute does not mention fiduciary claims, but the Minnesota Supreme Court has concluded that it “can apply to breach-of-fiduciary-duty claims against attorneys if the statute’s other requirements are met.” Mittelstaedt, 969 N.W.2d 634. In that claim the relationship “establishes a standard of conduct, i.e., the duty,” built on undivided loyalty, preserving confidences, and disclosing material matters, which is distinct from the reasonableness standard of care in a negligence claim. Id. The court also reaffirmed that the attorney carries “the burden of proving that he has been absolutely frank and fair with his client.” Id. (quotation omitted).

Good intentions alone do not defeat a breach claim. The Minnesota Court of Appeals held that an officer who believed he was protecting his company still breached his fiduciary duty, because his dishonesty meant he did not act in good faith and his false accounting records fell short of ordinarily prudent care. TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC, 890 N.W.2d 423, 434-35 (Minn. App. 2017).

What Defenses Will the Fiduciary Raise?

A fiduciary can defeat or limit a breach claim with four kinds of defense:

1. Statutory Defenses: A director who meets the standard in Minn. Stat. § 302A.251, subd. 1, “is not liable by reason of being or having been a director of the corporation.” A director present when the board acts is presumed to assent unless the director votes against the action, objects at the start of an unlawfully called meeting and stops participating, or is barred from voting under section 302A.255. Id., subd. 3. Officers are held to the same standard of conduct. Minn. Stat. § 302A.361, subd. 1. In an LLC, “[i]t is a defense to a claim under subdivision 2, clause (2), and any comparable claim in equity or at common law that the transaction was fair to the limited liability company.” (Subdivision 2, clause (2), is the duty to refrain from dealing with the company, in the conduct or winding up of its activities, as or on behalf of a person with an interest adverse to the company.) Minn. Stat. § 322C.0409, subds. 2(2), 5. A trustee who acts in reasonable reliance on the terms of the trust instrument is not liable for a breach of trust to the extent the breach resulted from that reliance. Minn. Stat. § 501C.1006. The statute of limitations is an affirmative defense, and “the party asserting the defense has the burden of establishing each of the elements.” Hansen v. U.S. Bank Nat’l Ass’n, 934 N.W.2d 319 (Minn. 2019) (quoting MacRae v. Grp. Health Plan, Inc., 753 N.W.2d 711, 716 (Minn. 2008)).
2. Limits in the Governing Documents: A corporation’s articles may eliminate or limit a director’s personal liability to the corporation or its shareholders for money damages for breach of fiduciary duty, but not for a breach of the duty of loyalty, “acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law,” liability under section 302A.559 or 80A.76, a transaction giving the director an improper personal benefit, or an act or omission before the limiting provision took effect. Minn. Stat. § 302A.251, subd. 4. An LLC operating agreement may not eliminate the duty of loyalty, the duty of care, or any other fiduciary duty, except as the statute allows. If not manifestly unreasonable, it may restrict or eliminate specific loyalty duties, such as the duty not to compete, and may alter the duty of care, but not to authorize intentional misconduct or a knowing violation of law. It may also eliminate or limit money damages, except for a breach of the duty of loyalty, a financial benefit the member or manager was not entitled to, a breach of a duty under section 322C.0406, intentional infliction of harm on the company or a member, or an intentional violation of criminal law. Minn. Stat. § 322C.0110, subds. 3, 4, 7. A trust term relieving a trustee of liability is unenforceable for a breach “committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries.” Minn. Stat. § 501C.1008(a).
3. Informed Consent: Consent works only after full disclosure. In an LLC, all of the members may authorize or ratify, “after full disclosure of all material facts,” a specific act that would otherwise violate the duty of loyalty. Minn. Stat. § 322C.0409, subd. 6. The operating agreement may instead specify a method by which “one or more disinterested and independent persons” may authorize or ratify the act “after full disclosure of all material facts.” Minn. Stat. § 322C.0110, subd. 5. A trust beneficiary’s consent, release, or ratification is binding unless the trustee obtained it through improper conduct, or the beneficiary did not know of the beneficiary’s rights or the material facts while the trustee did. Minn. Stat. § 501C.1009.
4. Business Judgment Rule: Under Minnesota’s business judgment rule, “so long as a disinterested director makes ‘an informed business decision, in good faith, without an abuse of discretion, he or she will not be liable for corporate losses resulting from his or her decision.’” In re UnitedHealth Group Inc. Shareholder Derivative Litigation, 754 N.W.2d 544, 551 (Minn. 2008) (quoting Janssen v. Best & Flanagan, 662 N.W.2d 876, 882 (Minn. 2003)). An LLC member’s, manager’s, or governor’s duty of care is likewise “[s]ubject to the business judgment rule.” Minn. Stat. § 322C.0409, subds. 3, 7, 8.